6/ b) is the most subtle and hardest to understand. This is where ZK fails To understand why, let's consider the simplest privacy app: zcash (no defi). When you submit a shielded zcash transaction, you produce a proof that says, roughly "I am sending coins such that my balance remains >0 after this transaction." Well, if you aggregate 1000 of those transactions and then look at the state of the chain as an outsider, what do you know about the state? Nothing Now imagine trying to do DeFi on top of that. How do you do DeFi if your transaction literally cannot see or interact with anyone else's assets A bunch of teams have been trying to address this over the last decade, including Aztec, Aleo, and probably quite a few more that I cannot recall atm. The fundamental challenge each of these teams has to contend with is the challenge described above. Basically, how do you design ZKPs to allow for selective information to be seen by the outside world (eg how much collateral is backing a loan) Now consider being a DeFi developer. You have to not only design your DeFi protocol, you have to do so 1) in a partially hamstrung way, and 2) you have to understand how ZKPs work. Who wants to be the developer building a DeFi system that has 9 or 10-figures in it with all of these additional risks. This is scary stuff Many of the zk DeFi teams have been working to try to make this stuff more understandable, but the underlying reality is just extremely difficult to contend with. Moreover, this requires rebuilding every DeFi primitive from the ground up. The fundamental challenge here is that DeFi as we currently know it *requires the ability to reason about globally shared state.* Perhaps there is a way to rebuild DeFi from the ground up with selective reasoning, but I am extremely skeptical of that claim. And demonstrating that claim to the world at large in a way that everyone else will believe it will be a decade long endeavor given how much technical risk is there with dozens of bespoke zk circuits. So what is FHE? FHE allows you compute over encrypted data. This has been considered the holy grail of cryptography for decades. Thinking about private DeFi using FHE as the primary cryptographic construction is actually quite simple. You think about it the same as if it was transparent! It's just that magically, everything is not transparent, but you can still compute over it anyways Yes, this is magic

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